The third quarterly review of the monetary policy for the current fiscal year brought hope to the struggling business community members who thought they were given breathing space by the Nepal Rastra Bank (NRB). However, their hopes have been dashed with NRB putting stringent conditions for loan restructuring and rescheduling in the unified directive for banks and financial institutions (BFIs). Issuing a circular on Wednesday, the central bank said that rescheduling and restructuring of loans can be done after the payment of at least 10 percent of the outstanding interest amount by analyzing the cash flow and income of the industry and business at the request of debtors. Bankers say the conditions set by NRB will benefit only a limited number of people while the larger number affected by the economic slowdown will not be able to get the relief. Bankers have also expressed their displeasure over the five percent provisioning condition that they say will affect the profit of BFIs.

In the third quarter review of the monetary policy, NRB set the mid-July, 2023 deadline for the restructuring and rescheduling of loans. The central bank allowed restructuring and rescheduling of loans up to Rs 50m to businesses such as hotels and restaurants, animal husbandry and construction firms, and other sectors by the time frame.

However, in the circular NRB has stated that the loan classified as an active loan up to Chaitra (mid-April) can only be restructured and rescheduled and the provisioning of a five percent on the restructured and rescheduled loan has to be made. According to the bankers, businesspersons will not get relief as mentioned in the monetary policy review after NRB’s directive. “Such facilities should have been given to those who paid loans regularly till Poush (mid-January),” said Bhuvan Dahal, former CEO of Sanima Bank. While the NRB has said that the construction sector is eligible for the loan rescheduling and restructuring facility, the central bank's guideline has defined only limited types of businesses under the construction sector. Based on the NRB definition, companies that own residential and non-residential apartments, housing, malls and large-scale construction projects such as highways, bridges, etc. will get the facility of loan restructuring leaving the companies producing steel, cement, paint, and bricks that have been affected the most by the current economic slowdown empty handed. Earlier, banks were required to have provisioning of 1.3 percent of all loans. In the latest directive, NRB has asked them to add 3.7 percent to the rescheduled and restructured loans. Bankers say that this will further affect their profits. Everest Bank CEO Sudesh Khaling said that the profits of banks will take a further beating due to the new provisions. “The central bank’s conditions for loan rescheduling and restructuring loans will add more pressure to the BFIs,” he said. The five percent provisioning condition, according to bankers, will not encourage BFIs to go for loan rescheduling and restructuring. “The profits are already on the lower side this year. Given the stringent conditions of the central bank, BFIs may not be keen to reschedule and restructure loans. This means the borrowers who’re in distress might not get this facility easily,” said the banker. The private sector is also dissatisfied with the latest circular of the central bank. “We were hopeful when the NRB announced a loan restructuring and rescheduling facility. But our hopes have been dashed by the directive,” said Ravi Singh, President of the Federation of Nepalese Contractors’ of Association (FCAN). “The 10 percent interest payment condition is difficult for struggling borrowers. Such is the situation that borrowers can’t even pay that 10 percent interest for their loan rescheduling and restructuring.” According to Singh, the other condition that only active loans till mid-April can be restructured and rescheduled does not address the demand of the private sector. “In fact, the loans of distressed borrowers have already been classified into the bad category. And, they should be given relief,” he said.